Chapter 4: On Being Competitive (Cont’d)

Microeconomic Environment Enhancing Competitiveness

The macro environment is important, but it is only the enabling condition. It is at the micro level where the nurturing environment is crucial for enhancing productivity. When individuals and companies are productive—creating increasing output for the same input—only then will this translate into increasing prosperity for that society.

What happens at the local level are eventually reflected nationally, both in economic and non-economic spheres. I illustrate this with the tin industry. Tin has been mined as early as the fifth century in Malaysia, with the element shipped to India for making bronze religious icons. The mining process was primitive—simply panning the tin-laden earth over water—and thus could be done by illiterate and unskilled coolies. Smelting too was equally simple. It was this simplicity in both mining and smelting that attracted hordes of unskilled immigrants from China in the late 19th century.

The industry changed substantially with technology, the vastly more efficient mechanized dredges introduced in 1912. Unlike the primitive hydraulic mining that was very labor intensive (employing thousands) but cheap, these dredges were very efficient but capital intensive (expensive). Only the colonial Brits could afford them, and only they had the skills to operate and manage such sophisticated operations. The far fewer but much more skilled personnel were consequently paid considerably more than the unskilled Chinese coolies. While the coolies barely survived and could only fantasize of someday returning to China, the British miners lived in luxury, frequented their clubs, and took annual Christmas vacations back in old England. They could do that as they were like the American rice farmers discussed earlier in being very productive. One British miner could produce as much tin as a thousand Chinese coolies; he deserved to be paid considerably more.

This had ramifications beyond economics. Those coolies, now displaced from the only vocation they knew, had to leave the mines. Some returned to China, others moved to the towns and tried other endeavors like petty trading. That helped diffuse the increasingly explosive social situation in these congested mines. As could be expected, such large concentrations of human beings created social problems like prostitution, gangs, and secret societies, not to mention the horrendous public health hazards.

Even though the industry employed far fewer workers, nonetheless the country benefited immensely, first by the vastly greater amount of tin mined with the highly efficient dredges, and second, in getting rid of the social pestilence at these overcrowded mines. This is important as most leaders today are obsessed with “jobs, jobs, and jobs.” In this case, losing thousands of unskilled mining jobs was good from all aspects.

Had the colonial government been consumed with such mushy liberal concerns as being “kind” to those displaced workers, and introduced rules preventing their retrenchment, the industry would forever remain hampered and inefficient. Worse, those unskilled Chinese coolies would be perpetually trapped. Because they were forced to leave the mines, they had to venture into other activities. A generation later, their descendents had the Malaysian retail market unto themselves.

The third consequence was the saving of the environment. Hydraulic mining was highly destructive, with entire hillsides washed away and the muddy effluent silting and polluting streams and rivers, with the residue creating dangerous quicksand and other unstable areas.

The focus must be on the all-important issue of increasing productivity; everything else follows from that, including the beneficial effects on society and the environment. There will be inevitable short-term dislocations as unemployment. The solution is not to block such productivity-enhancing innovations but to deal with the dislocations separately.

Imagine the consequences had those dredges been introduced a few decades earlier. For one, it would have obviated the need for bringing in hundreds of thousands of coolies from China, and the subsequent social and economic history of Malaysia would be far different. For another, the country would have been spared the devastating environmental degradations from hydraulic mining.

The microenvironment in which our mines, companies and other enterprises operate must be conducive to enhancing their productivity. We must not hamper productivity-enhancing innovations in the name of some dubious “do good” goals. If having those dredges meant having to bring in massive amounts of foreign capital and investments, so be it. In the long run, that would be far better than having massive migrations of people and the consequent social upheavals.

Next:  Porter’s Business Competitive Index (BCI)

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